Panel on Companies Act, 2013 suggests more freedom for India Inc

To make it easier for companies to do business, a panel, headed by Tapan Ray,  recommended

  1. doing away with any kind of government intervention in managerial remuneration; shareholders’ approval should suffice and no government nod should be needed
  2. allowing start-ups to issue more sweat equity and employee stock options (ESOPs). Now, 50 per cent of the paid up capital could be issued as sweat equity, against the existing norm of 25 per cent.
  3. The panel said employee stock ownership plan (ESOP) norms be relaxed for start-ups. Currently, ESOPs cannot be issued to promoters or promoter directors even if they are employees of the company. The committee felt this rule should be relaxed to enable issuance of ESOPs to promoters who are working as employees or employee directors or whole-time directors. This would help the promoters gain from increase in future valuation of the company without in impacting finances of the company during its initial years.
  4. On norms for associate companies, the panel suggested a company would only be considered an ‘associate company’ if the parent company controls at least twenty per cent of total voting power, instead of the current norm based on the share capital.
  5. The  panel recommended the removal of provision under Section 2(87), which prohibited the companies to not have more than two levels of subsidiaries.
  6. It has recommended that only those frauds which involve Rs 10 lakh or above, or one per cent of the company’s turnover, whichever is lower, may be punishable under Section 447.The panel found that Section 447 – which lays down the punishment for any person found guilty of fraud to minimum six months imprisonment – has a potential of being misused and may also have a negative impact on attracting professionals in the post of directors etc.
  7. In order to bring the Companies Act in harmony with the Sebi regulations, the panel said that independent director should not have any kind of pecuniary relationship with the company. It has recommended there should be a test of materiality so that a ‘pecuniary relationship’ can be established and, subsequently, prohibited if it is affecting the director’s independence.
  8. Sections 194 and 195 of the Companies Act – which restrict forward dealing and insider trading by directors and key managerial professionals (KMPs) of any company – have also been recommended to be removed. These issues are already covered under Sebi regulations.
  9. the panel has recommended formation of National Financial Reporting Authority (NFRA) under Section 132 of the Act, the need for an independent body to oversee the profession, in a major jolt to the Institute of Chartered Accountants of India (ICAI).



Contribution to a project or enterprise in the form of effort and toil. Sweat equity is the ownership interest, or increase in value, that is created as a direct result of hard work by the owner. It is the preferred mode of building equity for cash-strapped entrepreneurs in their start-up ventures, since they may be unable to contribute much financial capital to their enterprise. In the context of real estate, sweat equity refers to value-enhancing improvements made by homeowners themselves to their properties. The term is probably derived from the fact that such equity is considered to be generated from the “sweat of one’s brow.”


Equity is the value of an asset less the value of all liabilities on that asset.


A  stock option granted to specified employees of a company. ESOs carry the right, but not the obligation, to buy a certain amount of shares in the company at a predetermined price. An employee stock option is slightly different from a regular exchange-traded option because it is not generally traded on an exchange, and there is no put component. Furthermore, employees typically must wait a specified vesting period before being allowed to exercise the option.


The amount of a company’s capital that has been funded by shareholders. Paid-up capital can be less than a company’s total capital because a company may not issue all of the shares that it has been authorized to sell. Paid-up capital can also reflect how a company depends on equity financing. ( raising capital through the sale of shares in an enterprise.


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